The People's Bank of China (PBOC) has been widely expected by analysts to roll out more RRR cuts this year as the world's second-largest economy sputters amid a trade war with the United States.
"At present, the external environment is becoming more complex and severe, and the downward pressure on the economy is increasing," the State Council said at the meeting, which was chaired by Premier Li Keqiang, according to a statement on the government website.
"(We) will use both broad and targeted RRR cuts in a timely manner as tools to guide financial institutions to guide more funds into inclusive finance, and ramp up support for the real economy," it said.
The reserve requirement ratio is the share of cash that banks must hold in reserve, and cutting it unleashes liquidity for lending. A "broad" cut applies to most or all lenders, while targeted cuts are applied to certain segments of the banking sector.
The last time the PBOC implemented a broad cut was in January, when the RRR was lowered by a total of 100 basis points in two stages, freeing up $116 billion for new lending.
"There is room for cutting RRR and it's necessary to do so," said Wen Bin, economist at Minsheng Bank. "China's investment and consumption face downward pressure. It's necessary to cut RRR for all banks to support the real economy."
The PBOC has cut the RRR six times since early 2018, with Beijing urging cautious banks to keep lending to struggling businesses, especially smaller, private firms that account for over half of the country's economic growth and most of its jobs.
The state council, or cabinet, also stressed the need to ensure the economy grows at a "reasonable range", state broadcaster CCTV reported. China aims to achieve GDP growth of between 6% and 6.5% in 2019.
China will maintain a prudent monetary policy, and fine-tune the policy in a preemptive way, the cabinet meeting concluded.
Some bankers and analysts expect the PBOC to start cutting its key interest rates from this month, by lowering the rate on its medium-term lending facility (MLF), paving the way for cutting the new benchmark lending rate, the loan prime rate (LPR).
Beijing has also been trying to spur more infrastructure investment to support the economy. It has accelerated bond issuance in recent months in order to fill the full-year quota by the end of September, and eased some restrictions on special purpose bonds to allow greater leverage from banks.